In the past, Warren Buffett has not been overly keen on investing in tech stocks, due to his preference for value stocks. However, Buffett has also advised investors to “be fearful when others are greedy, and greedy when others are fearful”. Right now, there is a lot of fear around growth stocks, due to high rates of inflation and rising interest rates. But this potentially makes now an ideal time to buy. Here are two companies I feel Warren Buffett might be particularly interested in.
A cheap biotechnology stock
AbCellera Biologics (NASDAQ: ABCL) is a biotechnology firms that researches and develops antibodies. However, the stock has continued to fall and over the last 12 months it has sunk around 70%. This seems entirely detached from the company’s performance.
For example, in 2021, AbCellera reported revenues of $375m, an increase of 61% year-on-year. This also converted into strong profits as net earnings reached $153m, up from $119m the year before. From a valuation perspective, this puts AbCellera on a price-to-earnings ratio of around 16. For a biotechnology company that’s seeing growth, this seems very cheap, and might appeal to Warren Buffett.
But there are some reasons why AbCellera trades on a low P/E ratio. For example, the reason why profits have been so large recently is the company’s development of bamlanivimab, which has been used as a coronavirus treatment, in partnership with Eli Lilly. This has contributed towards the majority of AbCellera revenues and earnings over the past couple of years.
But even with coronavirus becoming less prominent, I’m still confident about the future of AbCellera. For instance, at the end of 2021, the company had 156 programmes under contract (a 51% year-on-year rise) and five programmes in the clinic (compared to just one the year before). This may explain why there has been significant amounts of insider buying recently, which is another bullish sign. Therefore, I feel that now that it’s beaten-down, Warren Buffett would be tempted to buy this stock. I’m also keen, and am tempted to add more AbCellera shares to my portfolio.
A fintech with the quality Warren Buffett requires
Warren Buffett only buys quality companies and after years of outperformance, PayPal (NYSE: PYPL) is, I feel, such a business. Its recent Q1 results continued to demonstrate the firm’s dominance in the fintech space. Revenues rose 8% year-on-year to $6.5bn and total payment volume grew 15% to $323bn. Unlike other growth stocks such as Netflix, PayPal was able to continue growing users, seeing an increase of 2.4m accounts in Q1.
Nonetheless, while these results were positive, they do still show that growth is slowing considerably. For example, revenues for 2022 are ‘only’ expected to rise around 12%, compared to 17% the year before.
But after the share price has fallen 65% in the past year, I feel this has been factored in. Indeed, PayPal now has a P/E ratio of just 30, far lower than it has been historically. This represents the value Warren Buffett looks for. Further, the company’s subsidiary Venmo, continues to grow rapidly, and a tie-up with Amazon, to be implemented later in the year, should progress this growth further. As such, with a reasonable valuation, and its continued dominance in the fintech space, I’ll continue to buy PayPal stock.